Legal Definitions - LBO

An L-Claim proceeding is a specific type of legal hearing conducted under the Racketeer Influenced and Corrupt Organizations Act (RICO). The "L" in its name refers to subsection (l) of RICO's forfeiture provision, which outlines the process for third parties to assert claims over property that has been ordered forfeited to the government as a result of a defendant's criminal activities.

The primary purpose of an L-Claim proceeding is to ensure that only property truly belonging to the convicted defendant, and connected to their illicit activities, is ultimately seized by the government. It provides a mechanism for innocent third parties who claim a legitimate legal interest in the forfeited property to demonstrate their ownership or claim, thereby preventing the government from taking assets that rightfully belong to someone else.

It is crucial to understand that an L-Claim proceeding is not a forum for general creditors to seek repayment of debts from the defendant's forfeited assets, nor is it intended to divide assets among multiple competing claimants. Instead, it focuses narrowly on whether a specific third party has a superior legal interest in particular property that the government intends to forfeit.

• Example 1: Jointly Owned Property

  Mr. Smith is convicted under RICO for running an illegal gambling operation out of a commercial property. The court orders the forfeiture of the property. However, the property is legally co-owned by Mr. Smith and his business partner, Ms. Jones, who had no knowledge of or involvement in the illegal gambling. Ms. Jones can file an L-Claim proceeding to assert her legitimate ownership interest in her half of the property, arguing that her share should not be forfeited because she is an innocent third party.

• Example 2: Property with a Lien

  A defendant, Ms. Davis, uses a luxury car purchased with illicit funds from her RICO enterprise. The car is ordered forfeited by the court. Unbeknownst to the court, Ms. Davis had taken out a legitimate loan from a bank to purchase the car, and the bank holds a valid lien on the vehicle. The bank, as an innocent third party with a secured financial interest, can initiate an L-Claim proceeding to protect its lien, seeking either the return of the car or the satisfaction of its loan from the proceeds of the car's sale before the government takes full possession.

• Example 3: Corporate Property Used by an Individual

  Mr. Chen, the CEO of a small manufacturing company, uses a company-owned private jet for personal travel related to his separate, illicit racketeering activities. After his conviction under RICO, the court orders the forfeiture of the private jet. The company's board of directors, who were unaware of Mr. Chen's criminal use of the asset and can demonstrate that the jet is a legitimate corporate asset, can file an L-Claim proceeding on behalf of the company. Their goal would be to prevent the forfeiture of the jet, arguing that the company, as a separate legal entity and innocent third party, is the rightful owner and should not lose its asset due to Mr. Chen's individual crimes.